This paper documents the downward trend in the labor share of global income since the early 1990s, as well as its heterogeneous evolution across countries, industries and worker skill groups, using a newly assembled dataset, and analyzes the drivers behind it. Technological progress, along with varying exposure to routine occupations, explains about half the overall decline in advanced economies, with a larger negative impact on middle-skilled workers. In emerging markets, the labor share evolution is explained predominantly by global integration, particularly the expansion of global value chains that contributed to raising the overall capital intensity in production.

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Abstract The labour share of income has been on a downward trend in both advanced and emerging economies. Declining labour shares in emerging economies, though less pronounced, present an important puzzle as they contradict the predictions of classical trade theory. This paper presents a stylized mechanism to reconcile these findings, at the centre of which is routinization, that is, the automation of labour in occupations highly exposed to substitution by computer capital. We assemble a novel dataset and introduce a new measure of the exposure to routinization to analyse the drivers of falling labour shares. While technological progress and exposure to routinization explain over half the overall decline in advanced economies, in emerging markets, the globalization of trade and the accompanying capital deepening are the most significant driver, with technological progress and routinization playing a negligible role.

Despite significant headwinds from population aging in most advanced economies (AEs), labor force participation rates show remarkably divergent trajectories both across countries and across different groups of workers. Participation increased sharply among prime-age women and, more recently, older workers, but fell among the young and prime-age men. This paper investigates the determinants of these trends using aggregate and individual-level data. We find that the bulk of the dramatic increase in the labor force attachment of prime-age women and older workers in the past three decades can be explained by changes in labor market policies and institutions, structural transformation, and gains in educational attainment. Technological advances such as automation, on the other hand, weighed on the labor supply of prime-age and older workers. In light of the dramatic demographic shifts expected in the coming decades in many AEs, our findings underscore the need to invest in education and training, reform the tax system, reduce early retirement incentives, improve the job-matching process, and help individuals combine family and work life in order to alleviate the pressures from aging on labor supply.

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